MIKE JATANIA - LORNAMEAD GROUP
Reproduced with permission from Growing Business Magazine
(Issue 37, March 2005)

Mike Jatania’s personal care products company, the Lornamead Group, has acquired 14 companies and product lines in just seven years and is rumoured to be worth £550-£600m. He tells Dan Matthews of Growing Business Magazine why that’s only the beginning.

Mike Jatania has some exciting news on the tip of his tongue, but a confidentiality clause prevents him from going into detail about Lornamead’s latest acquisition, which if completed would be the company’s fifteenth since 1998. All he can say is that it is a company, not just a brand; it is based in Europe and its market share places it third in its industry sector. As an extra tempter, he points out that the value of Lornamead’s acquisitions has grown almost exponentially with every new deal.

That would make the group’s latest venture very valuable indeed. Since Mike Jatania became Lornamead chief executive in 1990 – at the tender age of 25 – he has struck deals landing market-leading products such as Lypsyl lip balm, Amplex breath freshener mints and Natural White teeth whitening gels and pastes. Topping these would take some doing, even for someone with Jatania’s obvious drive. But this is what he does best: buying up ‘corporate orphans’ (products that are are being neglected) and adding value to them.

KNOWING YOUR STRENGTHS

George Jatania, Mike’s eldest brother, launched Lornamead in 1978. According to Mike, the company started out life trading “anything and everything” in West African markets. Vin and Danny, Mike’s two other brothers, joined the company and after completing a degree in accountancy, Mike followed suit in 1984.

The family decided to concentrate their efforts on four key areas: home and personal care, wines and spirits, food products and generic pharmaceutical goods – and to switch the business model from ‘sell anything’ to ‘sell goods that make money’.

At the same time, Lornamead began to establish closer ties with its multi-national clients, transcending the standard ‘buy-sell’ relationship – a process that eventually became the group’s first foray into brand management.

“We started to get involved in implementing their strategies in terms of pricing, promotion and above the line support for the brands,” says Jatania. “We did this for Colgate, Gillette, Unilever and Heinz, among others.

“It became the foundation of the group. We did that for three years; it gave us the predictability of cashflow and allowed us to go on a fairly steep learning curve in brand management. It showed us the vagaries of the consumer goods market, which is by nature very fast-moving.”

Close ties to multinationals formed the basis of Lornamead’s success – Jatania refers to this set-up as “the love affair” – but in a geographical sense, it also limited the business.

Lornamead was being held back because its partners did not require its brand management skills outside Africa, effectively restricting the company from lucrative markets in Europe and North America.

The decision to produce its own brands came soon after, a move that rewarded the business with control of its spatial frontiers. Simultaneously, the Jatanias resolved that further product consolidation was required.

The pharmaceuticals business was first to be sold, largely because the research and development element demanded more resources than the Jatanias were prepared to dedicate to the operation.

Next, the brothers decided to sell their food offering, which consisted of baked goods. According to Jatania, the decision to move out of the industry was motivated by very low profit margins, intense competition and the fact that there was “no room for middlemen”.

The wines and spirits business, meanwhile, survived the cut but was put into ‘harvest’. In other words, it was left to turn over without any support from advertising or brand development, while profits were churned into other parts of the business.

That left Lornamead’s personal care range, which was profitable without demanding too large a share of available resources. The Jatania brothers found that they could outsource the production of goods and focus their attention on brand development.

“It meant that the working capital we required to run the business was shared, because the outsourcing partner would invest in raw materials, packaging materials, make finished goods and even hold onto goods for a certain period,” says Jatania.

The process left the business with a curious strategy blending diversification and entrenchment. But stripping the business down enabled Lornamead to both branch out into new territories and to buy up more products within its main sphere of activity.

When asked the awkward question whether, in general, it is better to focus or diversify, Jatania replies that the two are not mutually exclusive. “It’s like shining a single ray of light through a prism,” he explains, “the light splits into several beams and lots of different colours.”

BRAND SPANKING

Financing and developing brands is a risky business, according to Jatania. He admits the business had “varying degrees of success” launching and building up its own product lines. There was a string of triumphs including Similar, a range of fragrances designed to look and smell like more expensive designer product lines, and the Tura skincare range formulated specifically for darker skin.

But the brothers soon found that creating successful brands from scratch was a painstaking and exhaustive process. Moreover, there are no guarantees of success and numerous potential pitfalls. “Bank money was not enough to finance our brands so we had to keep reinvesting profits back into new launches and development projects,” Jatania laments, listing the challenges the group faced in building a product portfolio.

“There is a certain degree of risk because you are spending considerable amounts of money on advertising up front. This, of course, is based on market research, but there is no guarantee of a return.”

Another encumbrance was that each brand had to be nurtured and encouraged over a long period. The brothers soon discovered that it takes time for people to pledge their loyalty to a new brand – a big reason why plenty of them fail early on. It was in the mid-1990s, with Mike Jatania now chief executive, that Lornamead developed the strategy that turned it into a global player. He saw that the business could leapfrog the difficult launch phase by buying up existing product lines and improving them.

CORPORATE ORPHANS

His ‘corporate orphans’ were not failing brands. Several that Lornamead snapped up were already market leaders, but were simply being neglected by their multinational handlers. Coincidentally, just as Lornamead was turning its attention to brands that had lost their way, the industry’s giant companies, such as Unilever and Proctor & Gamble, were shedding peripheral products and targeting billion dollar brands.

“Corporate orphans were famous brands that were either extremely strong in a local market or in a region but not from a global viewpoint,” Jatania explains. “What the multinationals wanted to do was to simplify their supply chain and their business processes.”

Lornamead was also reaping huge gains from the emerging, but fast-growing, market in eastern Europe, particularly Poland and Russia. As a comparatively small company, it was nimble and could respond to the burgeoning spirit of consumerism that spread across the region following the Soviet Union’s demise.

“Perestroika was very good to us,” says Jatania. “For once, the business could vie for market share on a level playing field, because the personal care giants were no more entrenched in the area than we were.”

“In fact it gave us the advantage. We were very much in the right place at the right time with the right strategy. And you always need a bit of luck in any business venture,” he reflects modestly.

Jatania found that by purchasing these well performing yet ‘non-core’ products and spending money on rebranding and marketing, Lornamead could extend the products’ market share further. The strategy is summed up in the company’s slogan: ‘Adding value to brands’.

ACQUIRED TASTE

The flurry of acquisitions began in earnest in 1998, with the purchase of Harmony hair care range from Unilever. Jatania believes it was the perfect product to launch the new business model: being a flagship brand it gave them a blueprint for future deals. Agreements followed with Henkel, Sara Lee, Network Health & Beauty, Procter & Gamble and Bristol-Myers Squibb, as well as several more with Unilever.

Of all the acquisitions, arguably the most astute was the purchase of Natural White. Lornamead acquired Natural White Inc, a USbased company, in December 2002. The sale included the manufacturing base, intangible assets and patent on the formula. Purchasing the copyright meant Lornamead benefited from two revenue streams, making money not only from sales to retailers, but also to its competitors who were banned from replicating the product.

Jatania smiles as he adds that when he acquired the company, the teeth whitening market in the US was worth about $50m, and was operating well below its potential. Since then it has exploded, sending the figure skywards to around $800m.

“There were around 40 pitches for its Ireland range, for which it hired advisers to whittle down,” Jatania recalls. “Lornamead won it and entered into a licensing agreement with the company, although the sale went ahead like an acquisition.”

Lornamead won the right to market and distribute several of Procter & Gamble’s leading hair care brands in Ireland, such as Herbal Essence, Silvikrin, Borne Blonde, Loving Care and Lasting Colour.

In among this frenetic deal-making the brothers also found time to set up a private equity fund, EPIC Brand Investments, which co-invests with the Lornamead group in home and personal care brands. Initially floated on AIM in December 2002 raising £50m, it was bought back by the brothers late last year in order to gain total control over its activities.

Despite such a meteoric mix of organic and inorganic expansion, Lornamead’s central focus has remained remarkably steady. Jatania makes sure the company sticks to what it knows best and outsources everything else.

It employs 400 people in Dubai, London, Jersey, Ireland, Toronto, Lagos, Johannesburg and Cape Town; and boasts a distribution network spanning 50 countries, yet Jatania describes it as resembling a ‘virtual company’ because of its emphasis on marketing over manufacture.

That’s not being completely fair to Lornamead, which operates a substantial R&D base, contract-manufacturing arm, tube filling operation and turnkey solutions. But it reflects Jatania’s belief that focusing on your strengths is the best way to get ahead in business.

BAND OF BROTHERS

A surprising aspect of Lornamead is that it is still essentially a family business, although lately Jatania prefers the term ‘business family’. At one time or another, the four brothers have all occupied senior posts, all are shareholders – the family’s combined stake totals 100% of the business – and all remain advisers.

Family is clearly very important to the Jatanias; the brothers live together and Mike admits that shoptalk is not confined to office hours. It is also a favourite conversation topic around the dinner table, he says. But the family is careful to not let its closeness cloud its business judgement. “Our family are the business’ shareholders,” he says, “but we don’t treat them any differently to institutional shareholders. We treat them with the same respect and objectivity.

“Family can also be a major weakness, however; you can’t become complacent or lazy just because you’re answering to people you know very well. You mustn’t take it for granted – if you don’t it can be of enormous benefit.”

The sibling core of the business is complemented by a strong management team, of which Jatania is obviously very proud. The family would never rule out selling the business, he says, and it is important to make sure it can build on its impressive track record without the brothers’ involvement.

“Family and management are separate – something that will help the business in the long term. We’ve brought in a good board with entrepreneurial flair,” he says.

But Jatania is by no means finished yet. In fact, you’d be forgiven for thinking he’s only just got going. His descriptions of the business are littered with references to drive, ambition, enthusiasm and future growth.

ABOUT THE JATANIA FAMILY

The Jatania family originally came from India, but their father, an entrepreneur, emigrated to Uganda in the 1930s and moved the family to Britain in 1970. The most active family members in Lornamead today are Mike Jatania (41), who joined the Lornamead Group in 1985 and has been its Chief Executive since 1990, and his brothers, George (53), Vin (50) and Danny (47).

THE LORNAMEAD ACQUSITION TRAIL